Analysis
The appellant was a property dealer and the respondent was a foreign exchange broker, who had a personal spread-betting account with IG Index. In August 2009, a third party informed the appellant of a deal offered by the respondent that involved a bet on the movement in the value of shares in Royal Bank of Scotland (RBS). The defendant claimed to know people who sat in on meetings between the heads of RBS and officials from the government, and it was expected the Chancellor would make a public statement which would have an effect on the share price of RBS. Following an initial telephone conversation, there was a meeting in early September 2009 at which the respondent confirmed that he could supply the appellant with this information and was willing to include his money in a bet based on that information. The appellant then transferred to the respondent’s bank account four payments totalling £620,000 between September and December 2009. In the event, nothing came of the proposal. According to the appellant, in late January or February 2010 he was informed by the respondent there was no longer expected to be a public statement about RBS and that he would return the money but, in March 2010, he was then told by the respondent that the money had been paid by mistake to the third party who became bankrupt. The appellant failed in his attempts to recover the money from the trustee in bankruptcy and brought proceedings against the respondent. The agreement between the parties was illegal because it sought to take advantage of insider dealing in shares and the pleadings were drafted in terms which plainly set out the nature of that agreement. Even though the agreement could not be and was not carried out because the expected inside information was not forthcoming, at first instance it was held that the appellant’s claim was still barred by illegality because he had of necessity to rely on the agreement pleaded. Further, even though the doctrine of locus poenitentiae had no application where there was no voluntary withdrawal from the agreement before it was performed, the position would have been different if the appellant had withdrawn from the agreement before its performance became frustrated. The appellant appealed.
Held (allowing the appeal)
As to the first question whether the appellant was entitled to recover £620,000 from the respondent without relying on the fact that it was paid under an illegal agreement for insider dealing, there was no doubt that there was no trust on the basis of which he could claim that the money remained his own from the moment it was paid over to the respondent. Per Rimer and Vos, LJJ (Gloster LJ dissenting) by pleading and advancing his case in the terms in which he did, the appellant was positively relying on the illegal agreement to substantiate his claim for the return of the money based on a total failure of consideration or a failure of the purpose for which the money had been paid and, therefore, he fell foul of the principle of public policy based on the maxim ex turpi causa non oritur actio that no court will lend its aid to a claim whose cause of action is founded on illegality.
As to the second question whether the appellant was nevertheless entitled to recover the money, even though he had not voluntarily withdrawn from the agreement before its performance was frustrated, as the illegal purpose had not been carried out, there was no direct authority as to this position. However, the decision of the Court of Appeal in Tribe v Tribe [1996] Ch 107 was of assistance since it showed that genuine repentance was not required on the part of a claimant who sought voluntarily to withdraw from an agreement before its illegal purpose was performed. Thus, the reason for the change of mind should not matter provided that it was in time. It followed that was no proper basis for a distinction between withdrawal from an illegal agreement that is no longer needed (as in Tribe) and withdrawal because the illegal agreement can no longer be performed. Accordingly, the appeal should be allowed and the respondent be ordered to repay £620,000 to the appellant.
JUDGMENT RIMER LJ [1] The appellant is Chandrakant Patel, the claimant. The respondent is Salman Mirza, the defendant. Mr Patel’s appeal is against an order made on 5 July 2013 by David Donaldson QC, sitting as a Deputy High Court Judge in the Chancery Division, dismissing his claim for the repayment of £620,000 he had …Continue reading "Patel v Mirza [2014] EWCA Civ 1047"